Two Dow-listed shares are projected to surge significantly in 2025 and beyond.
Two Dow-listed shares are projected to surge significantly in 2025 and beyond.
The DJI (Dow Jones Industrial Average, 0.70% increase) usually does not include growth stocks. Instead, it focuses on the market's largest companies, neglecting the potential for substantial growth. Typically, these firms are mature and operate at a slower pace.
However, some companies in the consumer sector manage to secure a spot in the index while still exhibiting promising revenue expansion potential. Consequently, investors should not overlook Dow 30 stocks from their growth stock portfolio. Two such companies to consider are:
Amazon
Amazon, with a ticker symbol AMZN (increase of 0.94%), is renowned for launching the e-commerce and cloud computing industries. Its strategic prowess and knack for capitalizing on opportunities have transformed it from an online bookstore into a retail and tech behemoth.
Investors might dismiss its growth due to its massive $2.4 trillion market cap. Normally, such giants face challenges in attaining significant percentage growth, as a mere 10% increase in Amazon equates to a market cap boost of $240 billion, surpassing the market caps of numerous other companies.
Nevertheless, the aforementioned growth makes more sense when you view the company as a constellation of businesses. Its primary and oldest venture, online sales, is a low-margin sector, and its financials hint at its possible non-profitability.
However, investors should focus on the businesses backed by the sales platform, such as its subscription service, third-party seller support, and digital advertising. The revenue growth of each of these enterprises currently hovers in the double digits.
As a result, the $450 billion in revenue generated during the first nine months of 2024 saw a 11% year-on-year increase. This expansion did not stem from the online sales segment, which reported a mere 5% increase in sales, but rather from its cloud computing division, Amazon Web Services (AWS), which boasted double-digit revenue growth. AWS alone contributed $29 billion to Amazon's $39 billion in operating income throughout the first nine months of the year, making it a significant profit engine and catalyst for growth.
The escalating revenue has propelled the stock by 55% over the past year. Despite these increases, its price-to-earnings ratio (P/E) is 49, just above the S&P 500 average of 31 but near its multi-year lows.
Therefore, although Amazon's size makes high-percentage growth more challenging, it demonstrates how it can still surpass market indexes. This strength is likely to sustain the stock's performance for years to come.
Verizon
My preference for Verizon (VZ, decreased by 0.48%) might surprise some investors, given the competitive pressure from its rivals, AT&T and T-Mobile. However, the company has been grappling with debt, amounting to $151 billion, which it has struggled to pay off.
Despite this burden, Verizon offers a dividend yield of 6.4%, or $2.71 per share annually. The $11 billion annual cost of the dividend potentially hampers debt repayment. Nonetheless, Verizon has awarded annual dividends for 18 consecutive years, making it unlikely to halt this practice even if AT&T did so in 2022.
Despite these challenges, Verizon appears to be in a profitable position. Over the past year, the stock has experienced a 12% increase, excluding its dividend returns. This growth can be attributed to the robust subscriber growth in Verizon's wireless and broadband business, particularly from January to September. The company also announced plans to acquire Frontier Communications Parent, which would grant it control of an extensive fiber network and allow it to enhance its communications offerings.
Moreover, discontinuing the dividend could potentially boost returns in the long term. Some investors may recall that T-Mobile, which does not offer a dividend, emerged as the highest-returning stock in this sector last year.
As mentioned earlier, the dividend claimed $11 billion of Verizon's $19 billion in free cash flow over the past 12 months. If the company could allocate a portion of this to debt relief, it could potentially enhance its profitability, benefiting its share price and strengthening investor confidence.
Lastly, its P/E has risen to 18, which while higher than previous years, is still below T-Mobile's earnings multiple. Assuming it maintains its current pace of subscriber growth, the stock ought to keep increasing, irrespective of Verizon's future dividend policy.
Despite Amazon's massive market cap and the challenges it faces in achieving high percentage growth, its diverse businesses, such as its subscription service and cloud computing division, continue to show double-digit revenue growth, making it an appealing investment opportunity in the growth stock portfolio.
Investors might consider adding Verizon to their finance portfolios due to its dividend yield of 6.4%, despite its debt burden, as well as its robust subscriber growth and potential for profitability enhancement if it diverts a portion of its free cash flow towards debt relief.